Payout Decisions Research Articles

The impact of CEO political ideology on labor cost reductions and payout decisions during the COVID-19 pandemic

The impact of CEO political ideology on labor cost reductions and payout decisions during the COVID-19 pandemic

Exploring the impact of fintech innovation on dividend payout decisions: the roles of intellectual capital and board characteristics

Exploring the impact of fintech innovation on dividend payout decisions: the roles of intellectual capital and board characteristics

Shareholder primacy or stakeholder governance?

Externalities happen largely in the private sector and cannot be fully separated from production decisions. Decision-making in companies thus co-determines the degree of sustainability of an economy. Advances in impact valuation allow us to express the stakeholder interests in finance and valuation terms. We can thus compare investment decisions and payout decisions for three types of models: the shareholder value model, the shareholder welfare model, and the stakeholder model. Our results show that stakeholder-driven companies are better able to pursue a sustainable economy. Corporate governance should be adjusted accordingly.

Financial decision dynamics: Environmental, social, and governance factors and managerial choices in emerging markets

This study examines the linkage between the ESG performance of firms and managerial decision-making. It uses 8 years of ESG performance data of 110 Indian firms collected from the Thomson Reuters database. The study finds that high ESG performance mitigates a firm’s cost of debt more than equity cost. Furthermore, increases in ESG performance are associated with higher capital expenditures, lower investment cash flow sensitivity, higher cash holdings, and lesser payout of increased cash flows to shareholders. The findings are in sync with the Slack resources view, suggesting that the requirement of financial Slack for ESG-related innovations and risk-bearing is large and impacts the major managerial decisions of firms. While the effects of environmental and social performance on these decisions are similar to that of the composite ESG performance, governance performance shows an independent impact on the payout decisions of firms. The Granger Causality test reveals a bi-directional association between debt issues and ESG performance. The main results obtained from the multiple panel regressions are robust to additional tests involving lead-lag analysis. The overall findings of this study highlight the importance of ESG performance screening in the managerial decision-making process of investors who would not like to risk growth potential for a short-term increase in dividends.

Company reputation and dividend payout

PurposeThe purpose of this paper is to examine the association between company reputation and dividend policy.Design/methodology/approachIn this study, sample of 98,809 firm-year observations from 22 countries covering 2005–2016 were used.FindingsFirm reputation concerns are associated with higher propensities to pay dividends and payout ratios. Further, this positive effect is more pronounced for firms with high free cash flows, high information asymmetry and low institutional monitoring. The results are robust to an instrumental variable approach, propensity score matching and the Heckman two-stage correction approach while addressing endogeneity concerns.Practical implicationsThese findings have significant implications for various stakeholders, such as existing and potential investors, managers, policymakers and regulators, by providing insights into the relationship between corporate reputation and firm dividend payout decisions. Corporate reputation is highlighted as crucial for accessing finance, emphasizing the role of national regulators and policymakers in facilitating firms' efforts to improve their reputation. The study highlights the dynamics of corporate reputation and dividend payout, calling for proactive engagement from regulators and policymakers. Crafting policies conducive to reputation-building can enhance firms' financial prospects, indicating the need for strategic interventions at managerial, regulatory and policy levels. Understanding the influence of economic context is crucial for firms to tailor reputation management strategies and optimize funding opportunities in different economic environments.Originality/valueOverall, results suggest that reputation serves as a disciplining mechanism, where firms will pay dividends to maintain their reputations.

Influence of Audit Committee Composition on Dividend Policy of Dt Sacco Societies in Kenya

Purpose: This study sought to examine audit committee composition and dividend payout of DT Saccos in Kenya. Methodology/Approach: The study adopted causal as well as descriptive research designs. The study targeted 403 and sample of 201 stakeholders of DT Saccos in Kenya. The unit of inquiry was chairpersons and Chief executive officer. Using questionnaires as a primary data collection approach, three research assistants were involved. Data was hence processed and presented in form of tables. Findings: A significant relationship between audit committee composition and dividend policy was ascertained P0.000<0.05. Implications: The paper formulates that audit team structure and composition based on skills and abilities results to proper dividend payout decisions.

Local peer influence on dividend payout decisions

Using a large sample of US-listed firms, we examine how firms’ dividend payout decisions are influenced by the dividend policies of their local peers. We find that the decisions to increase and decrease dividends are both influenced by the payout choices of firms headquartered in the same locality. We show that local peer effects are driven by the desire to compete for local dividend clineteles, with local peer effects proving more pronounced in geographies with greater retail investors clienteles, institutional-tax clienteles, and agency-cost clienteles. In contrast to dividends, share repurchases are not influenced by local peer repurchase decisions. Our findings prove robust to various sampling methods, peer portfolios, model specifications, and estimation techniques.

Does Peer Matters? How Peer Influence Firm Payout Policies: Evidence from Pakistan

Payout decisions are receiving more interest from an investor’s point of view. The purpose of this study is to investigate the effect of peer payout policies on a firm payout policy in Pakistan. This study employs an instrumental variable technique to overcome the endogeneity issue, which is based on peers' idiosyncratic equity shocks. The peers' payout policies have a causal link with a firm payout policy. The effect of peer pressure on firm payout is more evident in companies that compete in a more competitive market and have a good information environment. The firms that are similar in size or resource, especially young and small firms, are more responsive to their industry peers. This study provides channels for managers or policymakers to become more optimistic about formulating the payout policy to attract investors' attention and to compete more fiercely in the market.

Analyzing the Influence of Dividends on Share Prices in the Iraqi Stock Market from (2010 - 2020)

This study examines the relationship between dividend policies and stock prices among companies listed on the Iraq Stock Exchange from 2010 to 2020. This study utilizes a descriptive analytical approach, drawing on data from annual financial statements and disclosures published by the Iraq Stock Exchange. This study employs a simple linear regression model to analyze the impact of dividends per share and retained earnings per share on the market share price. The findings indicate a negative, statistically insignificant relationship between cash dividends and share prices, whereas retained earnings show a direct positive and significant correlation with stock valuations. Prior research in the Iraqi context has identified cash liquidity as the main determinant of dividend payout decisions, with shareholders favoring regular distributions, regardless of ownership. Studies also find a positive link between profit retention, investment opportunities, and dividends. However, broader challenges facing emerging stock exchanges, such as underperformance, speculation, and a lack of investor knowledge, can negatively impact market performance. This study provides a comprehensive, long-term analysis of dividend payout-stock price dynamics in the Iraqi market, offering valuable insights into how this relationship manifests in an emerging economy setting. The results contribute to the theoretical understanding of the factors driving stock valuation, and have practical implications for investment strategies and corporate dividend policies in Iraq and similar markets. Key recommendations include advertising campaigns to encourage savings, providing investment advisory services, and improving financial disclosure to build investor confidence.

ESG and dividend distribution decisions: evidence of moderation by shareholder activism

Purpose Environment, social and governance (ESG) practices and shareholder activism are making significant strides in the decision-making policies and processes for all firms. This study aims to assess the impact of ESG on the dividend payout decisions of firms in India. In addition, it also aims to determine how shareholder activism influences the impact of ESG on dividend distribution decisions. Design/methodology/approach The authors gather relevant data from 78 non-financial listed Indian firms from 2016 to 2020. This study undertakes longitudinal data analysis, with fixed effects and calculation of robust standard errors. In addition, the slope test is used to examine the effects of the interaction between ESG and shareholder activism. Findings It is found in the study that not only does ESG positively impact the dividends but also shareholder activism positively impacts the dividend distribution decisions. Surprisingly, the authors see a significant but negative interaction impact of shareholder activism on the positive association of ESG with dividend distribution decisions. In other words, ESG impacts dividend distribution decisions differently at levels of shareholder activism. When shareholder activism is low, ESG positively influences dividend distribution decisions. However, when shareholder activism is high, ESG negatively influences dividend distribution decisions. Practical implications This result has significant implications for all the stakeholders, including shareholders. A shareholder expecting a dividend could decide correctly through the current study’s findings. In cases of high shareholder activism, investors may skip picking a stock if investors expect high ESG to influence the dividend distribution decisions favourably. On the contrary, investors may choose a stock if shareholder activism is low and all else remains the same. Originality/value Literature has some evidence of the influence of shareholder activism and ESG (in silos) on the dividend distribution decisions in the firms. This study attempts to contribute by bringing forth the interaction effects of shareholder activism and ESG on dividend distribution decisions.

Factors Influencing Dividend Payment Decisions: A Case of Mutual Funds in Tanzania

The study aimed at investigating the factors influencing dividend payout decisions of mutual funds in Tanzania for panel data in the time interval of 2019 to 2022. Using the modified Lintner model as a theoretical framework, explanatory research design was used. Employment of explanatory variables including past dividend, free cash flow, liquidity, sales growth, return on assets, financial leverage, firm size and market risk and using descriptive and inferential statistical tools i.e. correlation, fixed effect and random effect regression models the facts were realized. The results of analysis found that dividend payout decision is positively and significantly affected by past dividend and return on assets. Also it was revealed that free cash flows, liquidity, sales growth, financial leverage , firm size had a positive and insignificant effects on dividend payout decision. Either market risks revealed to have negative and insignificant influence on dividend payout. These results therefore recommend that mutual funds management should make much concentration on paying for floating dividend. Furthermore, the findings remind mutual funds management to ensure firm makes profit for firm realize performance, cash inflows, liquidity and growth. Satisfactory payment of dividend ensures for a firm value increase, firm growth and investors prosperous measured in terms of increase in financial leverage. Increase in financial leverage is the firms’ management performance which expects to help hedge the market risks for market efficiency hypothesis being realized important for perpetual future dividend payment.

Do emerging market corporates mimic the payout policy of peers?

PurposeThis study aims to investigate the effects of peers on corporate payout policies in one of the largest emerging markets – India. It also examines the motives for mimicking payout decisions.Design/methodology/approachThe sample is composed of 3,024 non-financial and non-government firms listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) for the period 1995 to 2020. To encounter the endogeneity problem, the instrumental variable technique based on peer firms' idiosyncratic risk is used to estimate the effects of peers on firms' payout policy. To define peer reference groups, the authors use the basic industry classification of the firms.FindingsThe results indicate a significant positive impact of peers on firms' dividend policies in India. A firm with all dividend-paying peers is more likely to declare dividends than the one with no dividend-paying peers. Further, peer effects are found to be more pronounced amongst larger and older firms, thus supporting the rivalry theory of mimicking.Originality/valueTo the best of the authors' knowledge, the present study is the first of its kind that attempts to understand peer effects on payout decisions in an emerging market India, that offers a unique institutional setting. Moreover, the authors extend the existing literature by investigating the peer effects on a firm's payout policies considering various firm-level characteristics, such as growth opportunity, cash holding, financial constraint and profitability, which previous studies have not taken into consideration. These results provide additional insights into the heterogeneity and motives behind peer effects.

Cash Flows, Earnings, and Dividend Payout Nexus in Pakistan: A Case Study of KSE-100 Index

The nexus between cash flows, earnings, and dividend payout in Pakistan holds paramount importance for investors. It enables them to assess the financial health and stability of companies listed on the Karachi Stock Exchange-100 (KSE-100) Index, make informed investment decisions, and manage risks effectively. Therefore, the current study discusses the importance of dividends in corporate finance and the factors that affect the dividend payouts, particularly in the context of Pakistani listed companies in the Pakistan Stock Exchange (PSX). The contradictory nature of dividends has made it a fundamental issue of corporate finance, which has been studied in relation to a firm’s investment and financing decisions as prime variables. This study has found that earnings per share and free cash flow affect the level of dividends in the surveyed companies, with earnings per share having a positive but insignificant impact on the dividend per share. Profitability has a positive effect on dividend payout; however, there is no significant effect of earnings per share on the dividend. The findings enhance the current body of literature by providing insights into the determinants of dividend payout among the Pakistani listed companies. Furthermore, these findings are valuable for investors decision-makers, and policy makers, which make informed investment decisions. The study also identified problems for management and investors and other researchers who are conducting different studies to assess firm behaviour regarding payout decisions with possible solutions and future implications.

Departure of giants: ownership transition in lone-founder owned firms

PurposeThe characteristics of businesses change with the change in ownership structure of the business. This study examines the change in ownership structure of the firm after the departure of lone founders, and its influence on dividend payout decisions of the firm.Design/methodology/approachThe authors employed 4,302 firm-year observations of non-financial firms listed on Pakistan Stock Exchange over the period 2007–2021. To test the hypotheses, the authors employed ordinary least squares regression, and additionally, generalized method of moments estimation and fixed effect analysis were applied to check for the robustness of results.FindingsUsing the lens of agency theory and social identity theory, the authors report that the presence of lone founder (family owners) is negatively (positively) associated with dividend payout, however, transition of lone-founder ownership to family-owned and family-managed firm leads to more dividend payout, whereas its transition to family-owned and non-family-managed firm results in lesser dividend payments.Originality/valueThis study provides novel insight into the strategic behavior of lone founders and extend the limited family business heterogeneity literature by examining the effects of ownership transition and its influence on firm's dividend payout decisions.

Conflict of interests among shareholders – does it refer to dividend decisions?

Abstract Research background Agency theory refers to the conflict of interests between different groups involved in the business. One aspect of the agency theory is conflict among shareholders. One of the areas of potential conflict is dividend payment. Purpose The goal of our paper was to identify the impact of voting behaviour of shareholders during Annual General Meetings on dividend decisions. We make a comparison between big and small companies. Research methodology We included the 20 biggest and the 20 smallest companies from the Warsaw Stock Exchange (WSE) in our sample over the 2010–2022 period. We collected 413 observations (shareholders’ presence, voting results from annual general meetings, and financial data). We use statistical tests, a correlation analysis, and a regression analysis. Results: We found that in small companies there is conflict among large shareholders on dividend payout decisions, while in big companies small shareholders show their disappointment by voting against or abstaining from voting for financial statement acceptance (but not dividend payout decisions). Additionally, we found that the higher presence of large shareholders at the AGM the lower the dividend payout is. Novelty: The originality of the paper is that instead of ownership structure we took into account shareholders’ presence at AGM’s. We deal with a unique set of hand-collected data on voting results. We present new evidence on interests of conflict among shareholders (not only on dividend decisions). Although the problem of the conflict between minority and majority shareholders was identified, there is a scarcity of research on its background and implication.

Board characteristics and dividend payout decisions: evidence from Indonesian conventional and Islamic bank

PurposeThis study attempts to examine the relationship between board characteristics and dividend payout decisions of conventional and Islamic banks.Design/methodology/approachThis study employed unbalanced panel data of both Indonesian conventional and Islamic banks over the period 2008–2021, estimated using tobit and logit models. Dividend payout decisions were measured using the dividend payout ratio and probability to pay dividends. Meanwhile, board characteristics were represented by board size, board independence, board gender diversity, board meeting, board chairman tenure and board chairman tenure.FindingsThe results show that, in the context of conventional banks, board meetings, board chairman tenure and board chairman tenure are correlated with higher dividend payout decisions, while board gender diversity indicates lower dividend payout decisions. On the other hand, in the context of Islamic banks, board size and board meetings are associated with higher dividend payout decisions, while board independence and board chairman tenure are related to lower dividend payout decisions.Research limitations/implicationsThis study fills the gaps in the literature on bank dividend policy. It also provides additional insights regarding the relationship between board characteristics and dividend payout decisions in the context of conventional and Islamic banks. In addition, this study gives essential contributions to regulators and investors of both banks, especially in a developing country, Indonesia.Originality/valueThis study is one of the first to provide empirical results regarding the relationship between board characteristics and dividend payout decisions of conventional and Islamic banks. Board characteristics are indicated as one of the fundamental factors that determine dividend payout decisions of both conventional and Islamic banks in Indonesia.

Business strategy, cash holdings, and dividend payouts

AbstractBusiness strategy's impact on firm cash holdings and dividend payouts has largely remained unexplored. We identify a fundamental and direct link between a firm's business strategy and its cash holdings and dividend payouts. Analysing two large samples of data on US firms over the period 1992–2017, we find strong evidence that prospectors (defenders) are likely to hold more (less) cash and pay less (more) dividends than other firms. Further analysis suggests that prospectors pay dividends less frequently than do defenders. The results are robust to a battery of robustness checks and additional analysis. Overall, the results suggest that identifying a firm's business strategy significantly helps to understand a firm's cash holdings and dividend payout decisions.

The Impact of Dividend Policy on Company Financial Performance During the Covid 19 Pandemic : An Empirical Analysis

Dividend policy decision is one of the most important factors of corporate policy. Stockholders and potential investors generally believe that the dividend payout decision of the companies give important clues about the firm’s financial performance and its ability to generate sufficient profit. Investors are usually ready to pay a premium for a firm that follows a stable dividend policy.The purpose of this research is to investigate whether there is positive relationship between the dividend policies and the financial performances of the selected companies included in the Borsa Istanbul (BIST) Dividend Index (XTMTU). The selected companies are those 30 companies which distributed dividends regularly between 2018 and 2022. In this study, the dividend payout ratio, which is a dependent variable, is measured by the ratio of dividends paid by a company to its earnings. Two types of ratios were selected to conduct the research: profitability ratios and liquidity ratios. The result of the analysis indiates the positive relationship between profitability ratios of Return on Equity (ROE), Return on Asset (ROA), Earnings per Share (EPS) and dividend policy. On the other hand, a statistically significant relationship between the liquidity ratios of current ratio, cash ratio and net working capital ratio and dividend policy could not be determined. Keywords : Borsa Istanbul Dividend Index, dividend policy, profitability, financial perfomance, liquidity DOI: 10.7176/EJBM/15-6-09 Publication date: March 31 st 2023

Determinants of Dividend Payout in Private Insurance Companies of Ethiopia

This study aimed to identify determinants of dividend payout in Ethiopian private insurance companies. To achieve this objective, a quantitative research approach was used. Secondary data from ten insurance companies for eleven years period from 2010 to 2020 were used as panel data for analysis. The study analyzed both internal and macroeconomic variables; profitability, liquidity, leverage, firm size, firm age, and growth from internal factors and GDP and inflation from Macroeconomic variables. The random effect model was used to identify the effect of each explanatory variable on the dividend payout of Ethiopian private insurance companies. The result showed that profitability, liquidity, and firm size were found significant factors in dividend payout. Contrary to the predictions, the remaining variables-firm age, leverage, growth, GDP, and Inflation found to be insignificant. Thus, profitability, liquidity, and firm size have a positive and significant effect on dividend payout as predicted. Therefore, Ethiopian private insurance company managers should prioritize profitability, liquidity, and firm size when making dividend payout decisions.

Dividend Payout Decision and Investors’ Behavior

The paper aims to examine the effect of dividend payout on perceived value of shareholders. The purpose behind of this study is to understand awareness of investors about dividend payout and investment behavior. This study is based on descriptive research design. It is based on the perception of investors and includes the questionnaire asked to 150 investors at Kathmandu Valley. It is found that investor's preference for investment lies in dividend payout of the organization as investors are positively influenced through dividend distribution. Companies must maintain stable dividend payout ratio as shareholders expect it and reveal a preference for it. As an investor, one must be aware of dividend stock for the stable profit for longer period of time. Such stocks can act as hedges against higher-risk if there is any other risky stock in the portfolio.